It is one of the important theories in the economics which is also known by the name of factor endowment. This theory was firstly presented and authenticated by Heckshre and Ahline who were two very famous economists in the field. This theory contemplates that every country is rich in certain resources which can be found in abundance there. For example, some countries provide great labor work while some provide machineries well. Some have land in abundance while some have good capital investment. Every country has a comparative advantage on these resources due to the differences and needs of the resources in the line of production.
This theory stats that the country which have an abundance in machineries will make goods in which more of machinery is required and the same happens with the other countries which is rich in labor and hence makes products and commodities whose production requires labor. This is followed by the export major of the labor incentive goods in high margin. In simper forms, this theory stats the amount of land, capital, entrepreneurship and labor which a country possesses and have chance for making production values which will be helpful to both the producers as well as the citizens of that country. As a result, the countries which have a large production group or factor endowment will have higher profit eventually and the countries with small factor endowment will eventually have a lower profit range. There are various institutions which access, studies and analyses the equitable distribution of the resources which is very necessary for a country to sustain the best benefits for its country and its citizens from the factor endowment.
Now, the New world economies have made the new policies and appliances for the betterment of this, such as the conductive soils, which have the suitable and appropriate size and texture and places having sparse population which eventually came within the control and authority of the institutionalizing European colonists, who have a very marginal economic interest which is open for exploitation and the benefits can be reap from these sudden discoveries.
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There are some tools which helps in explaining this theory well, these are:
Production possibility curve is a curve which gives the idea about different combinations of two separate goods which a single economy can produce with the use of all the resources it has and capital and labor. The production possibility curve or PPC is a concave curve in look which is downward. For example, when the good A is produced more in an economy then the production of good B should have to be decreased simultaneously. This keeps the curve of Production possibility downward.
Price line is basically the base line which explains the relationship consensus between two products which can be fully purchased after giving a suitable amount of money from the real income for that goods. There is also a budget line, which is a very important element of analysis of the consumer behavior. The people’s preferences and choices are kept as an indicator with the combination of the two goods. The budget line is a continues line with the constraint.
A community indifference curve is a curve which showcases the pairs of the two goods at an equal level having the satisfaction of the whole community very high. In simpler words, it is an illustration which implies the different combinations of a single good which would eventually bring the whole society and community’s utility to a same level. The curves involved in this are all individual which are aggregated and held at one equal point of utility.
Factor intensity is referred to the relative importance of any one singular product which is compared with the other various factors in the production process in a particular industry. It is mentioned clearly in the glossary of the international economics. On other hand factor abundance means that the availability of the factors in a large supply scheme which is usually on terms when it is on the relative terms. It is mostly compared with the demand and the supply charge which is at another place and time.
Factor endowment is an important determinant in the process of production and also keeps up with the effects and changes in the trade patterns in different countries and places. Another thing about factor endowment is that the theoretical approach and the empirical literature on this have some theories on itself and confirms it. The survey and proper research work is very necessary in this. It helps up in making certain decisions and drawing up certain comparisons as for the purpose of research and study.
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